“When United Parcel Service Inc. UPS +0.28% said last month that it was taking a noncash charge of $3 billion tied to its pension plan, the package-delivery giant blamed what might seem like an unrelated event: the downgrade last summer of several big banks by Moody’s Investors Service.
But the connection between the two incidents illustrates the complexities of calculating pension liabilities—and how little power companies have in keeping them under control.
During the current earnings season, companies including UPS, Boeing Co.,BA +0.96% Ford Motor Co. F +0.82% and Goodyear Tire & Rubber Co. GT -0.38%have disclosed yawning pension-fund deficits, even though they have plowed billions of dollars into their plans and strong stock markets have boosted their investment returns.
Across America’s business landscape, the gap between the amount that companies expect to owe retirees and what they have on hand to pay them was an estimated $347 billion at the end of 2012. That is better than the $386 billion gap recorded at the end of 2011, but the two years represent the worst deficits ever, according to J.P. Morgan Asset Management.
The firm estimates that companies now hold only $81 of every $100 promised to pensioners.
In general, everything happening on the liability side of the pension equation is working against companies. A big source of the problem: persistently low interest rates, set largely by the Federal Reserve….”
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